Basically, inflation is a continuous rise in prices, so covering a one-time shortfall would not lead to inflation any more so than a successful company giving people a raise, despite there being an increase in money supply.

Basically, inflation is a continuous rise in prices, so covering a one-time shortfall would not lead to inflation any more so than a successful company giving people a raise, despite there being an increase in money supply.

But it would still lead to inflation. There are situations where real incomes must be cut because foreign credit is shut off.

You've stated these assertions but not justified them. Part two is false: printing $100 billion is not different from borrowing $100 billion. In both cases spending is the same, so there is no domestic inflation--how could there be? There isn't any more money than before.

Dutch Disease would be more a result of a windfall revenue, like the discovery of a major natural resource (as happened to the Netherlands in 1959, hence the name) causing manufacturing to decline as the currency strengthens, leading to more expensive exports. While foreign aid can trigger a similar effect, particularly in developing countries, this is not the same as selling securities on an international market. Rather, Dutch Disease as it relates to foreign inflows is more an issue for developing economies as opposed to mature ones - the US will not suffer from Dutch Disease due to selling treasuries to China, but if the US loans billions of dollars to a developing country in Africa, they could see a Dutch Disease effect.

Rather, Dutch Disease as it relates to foreign inflows is more an issue for developing economies as opposed to mature ones - the US will not suffer from Dutch Disease due to selling treasuries to China, but if the US loans billions of dollars to a developing country in Africa, they could see a Dutch Disease effect.

The goal of the Chinese strategy viz buying US treasuries is to induce a Dutch Disease and raise the USD.

They would never stop buying treasuries of course, it's just an example of how foreign borrowing causes appreciation.

Rather, Dutch Disease as it relates to foreign inflows is more an issue for developing economies as opposed to mature ones - the US will not suffer from Dutch Disease due to selling treasuries to China, but if the US loans billions of dollars to a developing country in Africa, they could see a Dutch Disease effect.

The goal of the Chinese strategy viz buying US treasuries is to induce a Dutch Disease and raise the USD.

They would never stop buying treasuries of course, it's just an example of how foreign borrowing causes appreciation.

The strength of the US dollar is determined by many more factors than just the influx of revenue from security sales. A strong US dollar may be good for those countries which export goods to the US, but if it becomes too cheap for the US to import goods, then employment and GDP growth start to decline, weakening the dollar. So, China and other exporters want to keep a balance - they want a dollar strong enough to make importing worthwhile over domestic production, but not too strong as to trigger a decline in the US economy, and a subsequent weakening of the dollar.

The strength of the US dollar is determined by many more factors than just the influx of revenue from security sales. A strong US dollar may be good for those countries which export goods to the US, but if it becomes too cheap for the US to import goods, then employment and GDP growth start to decline, weakening the dollar. So, China and other exporters want to keep a balance - they want a dollar strong enough to make importing worthwhile over domestic production, but not too strong as to trigger a decline in the US economy, and a subsequent weakening of the dollar.

Indeed they do.

I'm not sure but I think we agree that an MMT country could still have to cut real spending after loss of foreign credit (aka austerity). That's not the only issue I have though.

I disagree that neochartalism is a new idea in economics. Sure, it may be new in the sense that non-independent central banks have become rare after neoliberalism, but before then debt monetization and combined banks were fairly common; after all socialist financial systems were designed this way. Job guarantees were not though.

The other problem is that I'm not finding historical basis for the claim that taxation gives value to currency. Legal tender laws were introduced specifically to pay for fiat deficits because this isn't sufficient. I also don't see why they must take the form of taxes. Voluntary charges for infrastructure services and so forth which must be payed in a currency can have the same effect.

You've stated these assertions but not justified them. Part two is false: printing $100 billion is not different from borrowing $100 billion. In both cases spending is the same, so there is no domestic inflation--how could there be? There isn't any more money than before.

Even more than that, it's the borrowing that's backed by spending, not the other way around. When a currency issuing government (such as the US) borrows money in its own currency it creates money equal to the loan, gives it to the lender and then borrows it back. It's completely worthless exercise that serves only to prop up the overnight interest rate and free money for the people involved in these deals.

dickrick wrote:

The other problem is that I'm not finding historical basis for the claim that taxation gives value to currency.

Because it's not a historical argument you numpty. For most of history a gold standard has been in use, and taxation giving value to currency is a concept that applies to fiat currency. That said there are historical examples of fiat currency such as the tally stick system in England under Henry I and of course Roman currency*. The other thing is that taxation is only required to create demand for a currency if people are unwilling to use it, it's more a bootstrapping mechanism for the currencies issued by small powers.

*And no, the fact that there was gold and silver in their coins does not make it a gold backed currency because the face value of the coins significantly exceeded the intrinsic value of the metal.

It's completely worthless exercise that serves only to prop up the overnight interest rate and free money for the people involved in these deals.

++++++ It's positively sickening the amount of money being made by the primary dealer network in 'commissions' for the risk-free handling of the Fed's paper. MMT is simply a description of governmental accounting, and one of the things that description makes abundantly clear is how unnecessary this entire handout shell game is.

I have no problem with MMT as presented in this thread. It may be that the government could fund most if not all its current spending through monetization. Then it would simply be a matter of what whoever owns the government thinks should be done with that ability.

All the research on the effects of government programs has been in a fiat currency, tax revenue-based environment. Perhaps inflation would be less distortionary and would eliminate the damage to the economy incurred by tax financing.

Are there any proposals to implement MMT? A "Free State Project" if you will to implement an MMT micro-economy?

It's my understanding that MMT is merely an observation of how things work currently, like evolution or the rain cycle. It's not so much that one "institutes" it as much as they simply "understand it."

I suspect most people in the government do understand it, or at least listen to their economic advisers that understand it. They don't preach it to the public of course, because what politician wants to get up and try to explain macroeconomic theory to people like dickrick. It's much easier to say "The government is like a family balancing their checkbook at the kitchen table" and then just print several trillian dollars and shrug.

The UMKC Buckaroos system is a example of a fake currency created primarily to test MMT principles (and also to facilitate a community service program). It seems to work.

A state can't implement such policies because it's not sovereign in its currency and it isn't allowed to create a new one.

dasein wrote:

The US government is not constrained by revenue. That is the whole point of MMT - the US government has an unlimited supply of dollars, so taxation is not necessary to raise revenue for spending.

While this is true, the government of a modern industrialized nation is enormous, and must recover some of its spending via taxes. To do otherwise would be an excessively large increase in the money supply.

There's no other revenue scheme that could come remotely close to collecting the same amount of money. Eliminating taxes is just a blatant attempt to shrink government to nothing--the drown-it-in-a-bathtub strategy that Faramir made reference to.

There's no other revenue scheme that could come remotely close to collecting the same amount of money. Eliminating taxes is just a blatant attempt to shrink government to nothing--the drown-it-in-a-bathtub strategy that Faramir made reference to.

It can be. One doesn't know what is possible until one tries however.

Interesting reading about the Buckaroo system. It seems to demonstrate full employment/price stability, at least on a small scale.

Actually there's this field called economics (and more broadly "math") which does give us a clue about what might be possible.

But you didn't want to derail the thread with this discussion, right?

Bammer wrote:

I suspect most people in the government do understand it, or at least listen to their economic advisers that understand it. They don't preach it to the public of course, because what politician wants to get up and try to explain macroeconomic theory to people like dickrick. It's much easier to say "The government is like a family balancing their checkbook at the kitchen table" and then just print several trillian dollars and shrug.

I don't think this is true. MMT isn't well-accepted by economists in general, and particularly not by the type of economists advising politicians. Even Paul Krugman, who is maybe 95% in agreement with everything it says, does not buy into all of the details. They don't listen to him--they certainly aren't listening to Bill Mitchell or L Randall Wray.

It isn't plausible to me that the vast majority of economists secretly agree with this stuff but are putting up a massive charade in which they act like they don't understand any of it. It's more likely that old theories are heavily entrenched. We haven't been fully off a gold standard for all that long, in terms of academia and politics. A lot of people who were working during the Nixon are still working now.